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U.S. Treasury Secretary Janet Yellen. Source: Jonathan Ernst/Reuters.
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  • Tech shares sold off on Monday have pushed the Nasdaq to a correction, offsetting other stocks that rose on hopes of a stimulus-led U.S. economic recovery
  • Shares related to finance, restaurants and travel were buoyed by the advancing relief bill, but were unable to balance the influence of technology stocks
  • As a result, the Dow hit a record intra-day high, while the Nasdaq closed down 2.41 per cent
  • Apple, Nvidia and Google have led the tech stock decline, while Tesla lost more than one-third of its value in the past month
  • Tech stocks are especially sensitive to rising yields because their core value relies predominantly on future earnings, which are discounted more heavily when bond returns go up

Tech shares sold off on Monday have pushed the Nasdaq to a correction, offsetting other stocks that rose on hopes that a US$1.9 trillion (roughly A$2.48 trillion) COVID-19 relief bill will ramp-up the U.S. economic recovery.

Shares related to finance, restaurants and travel — sectors expected to do well with a more open economy — were buoyed by the advancing bill, but were unable to balance the influence of technology stocks that dominate the U.S. stock market.

As a result, the Dow hit a record intra-day high, while the Nasdaq closed down 2.41 per cent. The Nasdaq has hit several all-time highs over the last 12 months but is now 10.6 per cent off its record close on February 12.

Following Senate approval on Saturday, U.S. President Joe Biden said he hoped the bill would receive quick passage through the Democrat-controlled House of Representatives so that the US$1400 (roughly A$1830) direct payments could be made to Americans.

U.S. Treasury Secretary Janet Yellen said on Monday the package would fuel a “very strong” U.S. recovery, but added she did not expect the economy to run too hot because of the increased spending.

As bond yields have moved up, concerns regarding equity valuations for growth-oriented stocks — particularly tech stocks — have weighed on the Nasdaq relentlessly over the last few weeks. Apple, Nvidia and Google have led the decline, while Tesla lost more than one-third of its value in the past month.

Stocks anticipated to do well once people start travelling and eating out again, on the other hand, have been leading the charge higher, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“People have been reallocating assets into those sectors. It’s been coming out of growth-tech to fund those purchases,” he said.

Tech stocks are especially sensitive to rising yields because their core value relies predominantly on future earnings, which are discounted more heavily when bond returns go up.

The divergence between tech stocks and non-tech stocks is illustrative of the current trading environment, said Joe Saluzzi, partner and co-founder of Themis Trading in Chatham, New Jersey.

“The stimulus package will be certainly helping the bigger cap names,” Saluzzi said, referring to non-tech stocks.

“The get-out and non-stay at home stocks are doing better now.”

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